Good morning.
Global stocks and U.S. futures are gaining this morning with tech again leading the way. That trend could prove sticky as COVID cases spike on both sides of the Atlantic.
After slipping into bear territory last week, crypto remains under pressure this morning.
In today’s essay, I dig into the latest BofA Securities year-ahead outlook. They take the crystal ball out to check in on a variety of risk-assets: stocks, crypto and credit. Spoiler: they have big concerns about crypto as the Federal Reserve grows more hawkish.
But first, let’s see what else is moving markets.
Markets update
Asia
- The Asian markets were mixed with the Hang Seng, the worst of the bunch, down roughly 0.4% on the day.
- The Alibaba slump continues. The Internet giant fell 1.6% in Hong Kong on Monday, and is off more than 20% in the past month. Regulatory headaches and a slowing Chinese economy are slamming the stock.
- In IPO news…New share issuances around the world are set to smash all records with IPOs raking in more than $600 billion this year. So, it’s not just EV darling Rivian Motors.
Europe
- The European bourses were mostly higher out of the gates, bouncing back from Friday’s sell-off. The benchmark Stoxx Europe 600 was up 0.3% a half-hour into the trading day. Financials and health care stocks led the way higher at the start.
- The euro continues to sink like a stone. With COVID uncertainty heightening, Goldman Sachs is the latest to revise lower its 3-month and 6-month euro FX rate against the greenback. You can add the strong dollar to rising inflation as a 2022 headwind for Corporate America.
- Shares in Telecom Italia popped nearly 30%—a whole ten-cent jump—on news that private equity specialists KKR will make a $12 billion bid to buy the struggling firm, and take it private.
U.S.
- U.S. futures have been climbing all morning. On Friday, the Nasdaq closed at a new all-time high as investors loaded up on tech stocks with global COVID cases on the rise.
- Oil prices fell 4% last week, slumping to a six-week low. On cue, energy stocks are down 5.2% over the past five trading sessions.
- It will be a holiday-shortened trading week—U.S. markets are closed on Thursday for Thanksgiving—but there’s still plenty on the week-ahead calendar. We have results from Zoom Video (today), Gap (tomorrow) and Deere & Co. (Wednesday). If you like historical data: the markets tend to do well on Thanksgiving weeks.
- Another thing to watch: who will head the Fed? President Joe Biden could make that decision as soon as this week.
Elsewhere
- Gold is off slightly, trading around $1,840/ounce.
- The dollar is gaining.
- Crude continues to weaken with Brent hovering around $78/barrel this morning.
- Crypto is having a moody Monday. Bitcoin trades below $58,000 after nearly hitting $60K this weekend. Ether too is under pressure, sitting around $4,200.
***
The year ahead: crypto, credit and stocks
To recap: Last week we saw a further divergence in stocks. Tech took off (along with consumer staples) as COVID cases jumped, and with governments reinstating lockdown measures ahead of the vital Christmas period. At the same time, the big reopening bets—financials and energy—were the worst performers last week, continuing a month-long slide.
This trend could continue if a dreaded winter wave of COVID slams the world’s biggest economies. So far, it’s doing a job on parts of Northern Europe.
But most analysts agree the winter COVID gloom is a short-term headwind. The more durable issue for the year ahead is that of markets entering a period of more hawkish central bank policy across much of the developed world. On the cards we have tapering (central banks cutting back on their bond purchases) and tightening (hiking interesting rates). On the latter, Michael Hartnett, chief investment strategist at BofA Securities, sees a policy “shock” coming in 2022, one that will hit equities, crypto and credit differently.
On the last of those, BofA is seeing renewed investor interest in investment-grade and high-yield debt. That could explain why bond yields have been fairly subdued over the past few weeks. On cue, both private and institutional investors are buying up assets like government bonds and bank loans.
Now let’s move on to equities.
Already this year, investors have purchased more than $1 trillion worth of equities, a record. That no doubt explains why the benchmark S&P 500 is up more than 25% so far in 2021.
But there are clouds on the horizon. Equity inflows have trended down over the past four weeks, as the chart below indicates.
BofA is seeing a fairly wide-reaching drop-off here in stocks. Over the past month, inflows into energy, financials and tech are all trending lower.
That’s the glass-half-empty view. The more positive take shows equity inflows are still well above where they were at this point last year. In fact, buyers far outnumbered sellers last week, with a “net” $13.2 billion in equity inflows lifting the markets.
The view on crypto is less optimistic. Hartnett sees the market for Bitcoin and other alt-coins as too “frothy,” warning it’s one of the “potential next dominoes to fall.” That dip, he adds, could come sooner rather than later. He believes the Fed taper, which is expected to begin on Dec. 15, will be a trigger point that will draw liquidity out of the markets, and that will add further price volatility to crypto.
But don’t feel too bad, crypto bulls. Just look at this 2021 BofA performance chart. Bitcoin is up 98.8% YTD.
***
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
Millennials and Gen Z are a growing force in investing. The market needs to catch up—Fortune
The green economy is poised to create an immense amount of prosperity—but will everyone benefit?—Fortune
Bad news for Bitcoin: Sweden wants the EU to ban mining—Fortune
Trillions in Assets May Be Left Stranded as Companies Address Climate Change—Wall Street Journal
How the U.S. Lost Ground to China in the Contest for Clean Energy—The New York Times
Market candy
Quote of the day
The jobless folks are coming back, they're just not coming back as fast as the employers want them.
That's Peter Cappelli, a professor of management at The Wharton School, speaking about the factors that have given rise to one of the tightest labor market in memory. In the same story, Fortune's Meghan Leonhardt shares the bonkers numbers behind the Great Resignation
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